Exhibit 10.1
PROMOTION AGREEMENT
THIS PROMOTION AGREEMENT ("Agreement") is made effective as of June 2,
2004 ("Effective Date"), between SLS International, Inc., a Delaware
corporation, with a principal place of business at 0000 X. Xxxxxx Xxxxxx,
Xxxxxxxxxxx XX 00000 ("SLS") and Global Drumz, Inc., a California corporation,
with a principal place of business at c/o Xxxx Xxxxxx, Xxxxxx & Co., 00000
Xxxxxxxx Xxxx., Xxxxx 0000, Xxx Xxxxxxx, XX 00000 ("Company"). SLS and Company
hereby agree as follows:
1) LICENSE GRANT.
a) Company hereby grants to SLS, subject to all of the terms and
conditions of this Agreement, a non-exclusive,
non-transferable, non-sublicenseable, worldwide right and
license to use Xxxxxx Xxxxx' name and approved likeness (the
"Licensed Rights") during the Term (defined below) in
connection with the sale, marketing and promotion of
SLS-branded loudspeakers and other audio products to be
mutually agreed upon by the parties in writing (the
"Products"); provided, however, that (i) all uses of the
Licensed Rights shall be subject to Company's prior approval
as set forth in Section 1(d) below and (ii) SLS shall have no
right to use any of the Licensed Rights as a trademark or
otherwise to identify the source of any product or service.
b) During the Term, Company shall not grant a license of any of
the Licensed Rights to any third party for use in connection
with loudspeakers.
c) All rights not expressly granted to SLS hereunder are reserved
by Company. Company shall retain exclusive ownership of the
Licensed Rights, subject to the license granted to SLS
hereunder, including all intellectual property rights therein.
SLS shall not identify itself as the owner of any of the
Licensed Rights or any right or interest therein or any
registration or application for registration thereof, except
as a licensee. Company shall not adopt, use or register any
corporate name, trade name, fictitious business name,
trademark, domain name, service xxxx or certification xxxx, or
other designation similar to, or containing in whole or in
part, any of the Licensed Rights. SLS shall not apply for the
registration anywhere in the world of any trademark which
incorporates, is the same or is confusingly similar to any of
the Licensed Rights.
d) The Company shall have written approval (which approval shall
not be unreasonably withheld) over (i) all advertising or
promotional campaigns and materials using Company or Xxxxxx
Xxxxx' name or likeness (including, without limitation,
theatrical, television or radio commercials, print or other
advertisements, billboards, publicity releases and the like)
and (ii) any and all photographs, stills or non-photographic
likenesses of Xxxxxx Xxxxx alone or with others, used in any
manner by Company including, without limitation, as part of
commercials, print advertisements, publicity or press releases
and the like.
e) As a condition to the effectiveness of this Agreement, the
Company shall cause Xxxxxx Xxxxx to deliver an inducement
letter in the form attached hereto as Exhibit A.
2) SERVICES.
a) During the first year of the Term, Company shall cause Xxxxxx
Xxxxx to perform the following services ("Services"), as
requested by SLS from time to time and at Xxxxxx Xxxxx'x
convenience (except with respect to clause (v) below):
i) Xxxxxx Xxxxx will use his good faith efforts to
introduce SLS officers, employees and consultants,
approved by Xxxxxx Xxxxx, to his friends and
associates who are interested in meeting with SLS to
explore the opportunity of doing business with SLS.
Neither Company nor Xxxxxx Xxxxx provides any
guarantee that any such introductions will occur or
produce any results;
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ii) Xxxxxx Xxxxx will use his good faith efforts to
introduce members of SLS's management and its
designees and, subject to his availability,
participate in meetings with major media and
entertainment outlets, subject to the approval of
Xxxxxx Xxxxx. Neither Company nor Xxxxxx Xxxxx
provides any guarantee that any such meeting will
occur or result in any air time, plugs or produce any
other results;
iii) Xxxxxx Xxxxx will be available for one (1) production
day (not exceeding eight (8) consecutive hours) for a
photo shoot, of not more than six consecutive or
aggregate hours in duration, in connection with SLS's
development of point of sale promotional materials
for the Products. Such photo shoot will take place in
Los Angeles, California at a mutually agreed-upon
time within ninety (90) days following the Effective
Date;
iv) Xxxxxx Xxxxx will use his good faith efforts to
facilitate the publication of one (1) editorial
article about SLS and the Products in a major
entertainment magazine, such as Vibe. Neither Company
nor Xxxxxx Xxxxx provides any guarantee that any such
article will be published nor provides any warranty
or representation with respect to the content of any
such article;
v) Xxxxxx Xxxxx will attend at least one day (with SLS
selecting the day) in at least two (2) of the
following five (5) SLS-sponsored industry trade
events (with the Company selecting the two events,
but Company will consider in good faith SLS's
requests and preferences concerning specific events):
Event Date
----- ----
AES Show, San Francisco, CA 10/28 - 10/31/04
Grand Opening of Wherenberg Theaters
Complex, Chesterfield, MO Last week of 00/00
XXX Xxxx, Xxx Xxxxx, XX 1/6 - 1/9/05
NAMM Show, Anaheim, CA 1/20 - 1/23/05
NSCA Show, Orlando Fl. 3/11 - 3/13/05
b) During the second year of the Term, Company shall, following a
request by SLS, cause Xxxxxx Xxxxx to make one (1) promotional
appearance, subject to his availability, of not more than six
consecutive or aggregate hours in duration (the "Appearance").
c) SLS will provide, at its expense, private jet transportation
and personal security and SLS shall pay for all first class
expenses for all round-trip travel by Xxxxxx Xxxxx and one
additional person in connection with his performance of the
Services under Sections 2(a)(v) and 2(b).
3) COMPENSATION.
a) In consideration of Company's grant of the license hereunder,
SLS shall pay Company a non-refundable fee of Two Hundred
Fifty Thousand Dollars ($250,000) concurrent with SLS's
execution of this Agreement (the "License Fee").
b) In consideration of the Company's performance of the
obligations specified hereunder, on the Effective Date hereof,
SLS will issue to the Company an option, with a five-year
term, to purchase up to 1,000,000 shares at an exercise price
of $2.00 per share (the "Option Shares") of SLS's Common Stock
each with a Warrant, with a five-year term from issuance of
the option, for an additional share of Common Stock at an
exercise price of $7.00 per share (collectively, the "Warrant
Shares"; together the option and the Warrant are referred to,
collectively, as the "Option"). The Option shall automatically
vest as to fifty percent (50%) of the Option Shares and the
Warrant Shares upon the Effective Date and as to one-sixth of
the remaining Option Shares and Warrant Shares monthly
thereafter. Notwithstanding the foregoing, vesting of the
Option shall accelerate and the Option Shares and the Warrant
Shares shall vest in full (i.e., 100%) upon the occurrence of
any of the following events: (a) Any termination of this
Agreement by SLS, except as permitted under Section 7(b) or 11
below, (b) Any termination of this Agreement by Company
pursuant to Section 7(b) or 7(c) below, or (c) any sale of all
or substantially all of SLS's voting stock, assets or business
or any merger of SLS with another entity (excluding a merger
with a wholly owned subsidiary). Concurrent with SLS's
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execution of this Agreement, SLS shall provide the Company
with an Option Agreement and Warrant, in a form and substance
reasonably acceptable to the Company, for the Option
containing provisions consistent with this Section 3(b) and
customary anti-dilution, adjustment and cashless exercise
provisions. In addition, SLS will, at its sole cost and
expense, within ninety (90) days of the date of issuance of
the Option, file with the U.S. Securities and Exchange
Commission a Registration Statement on Form SB-2 covering the
resale of the Option Shares and the Warrant Shares and SLS
shall use commercially reasonable efforts to have the
Registration Statement declared effective as soon as possible
and to maintain its effectiveness until the date that the
Option Shares and the Warrant Shares may be sold pursuant to
Rule 144(k) under the Securities Act of 1933.
c) In the event the closing price of SLS's Common Stock does not
exceed $7.00 per share for a period of five (5) consecutive
business days during the period commencing on the Effective
Date and ending on the expiration of the term of the Option,
then on the first day following expiration of the term of the
Option, SLS shall pay to Company additional compensation in
the amount of Two Hundred Fifty Thousand Dollars ($250,000) in
addition to all other consideration provided by SLS hereunder.
d) In further consideration of Company's performance and its
grant of the rights hereunder, in addition to SLS's payment of
all other amounts pursuant to this Section 3, SLS shall pay
Company, within thirty (30) days after the end of each
calendar quarter a commission of five percent (5%) of all
gross revenues generated by SLS or any affiliate during such
quarter resulting, directly or indirectly, from a transaction,
occurring during the Term or within one (1) year following
expiration or termination of this Agreement, involving any
introduction made by Xxxxxx Xxxxx and/or Company to SLS. SLS
shall keep true and accurate books and records in accordance
with generally accepted accounting principles as necessary to
determine such gross revenues. For purposes of verifying the
amounts owed to Company under this Agreement, and conditioned
upon the Company and each designee signing an appropriate
confidentiality agreement, Company or its designee shall have
the right to examine and audit SLS's books and records, at
Company's expense, upon reasonable notice to SLS. SLS's
payment obligations under this Section 3(d) shall expire
twenty (20) years following expiration or termination of this
Agreement.
e) If SLS elects to request that Xxxxxx Xxxxx makes the
Appearance, then within twenty four hours following the
Appearance, SLS shall pay the Company a fee in the amount of
Seventy Five Thousand Dollars ($75,000).
f) All payments hereunder shall be made by SLS's check. SLS shall
have no right to offset against any amounts payable to Company
hereunder the amount of any claim, damages, costs, losses or
expenses incurred by SLS in connection with Company's or
Xxxxxx Xxxxx'x performance.
g) To the extent that the financial and tax accounting treatments
of the License Fee and the Option shall differ from the
allocation of the License Fee and the Option to the license
grant and the Services as set forth in Sections 3(a) and 3(b),
respectively, then the parties agree to enter into a separate
written agreement providing a mutually agreeable reasonable
allocation of the Option and the License Fee to the license
grant and the Services and all subsequent reporting and
filings by either party relating to the Option or the License
Fee shall be made in accordance with such agreement.
4) [Intentionally omitted.]
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5) PRODUCT QUALITY.
a) SLS shall maintain strict control over the quality of the
Products. SLS covenants that it shall maintain throughout the
Term at least the level of quality and workmanship of the
Products existing on the Effective Date. During the Term,
Company shall have the right, upon request, to have the
Products inspected and tested at its expense by its designees
at SLS's facilities or at a location specified by Company.
b) SLS shall promptly notify Company of any and all claims of
death, bodily injury or property damage in connection with the
use or operation of any of the Products. SLS shall defend,
indemnify and hold Company, its affiliates and their
respective officers, directors, stockholders, employees,
successors and assigns (each, an "Indemnitee") harmless from
and against any and all demands, claims, liabilities, suits,
proceedings, damages, losses, judgments and settlements and
all related costs and expenses including, but not limited to,
attorneys' fees and court costs, as well as all damage to
Company's and/or Xxxxxx Xxxxx'x goodwill and reputation
arising directly or indirectly from or in connection with (i)
the manufacture, labeling, packaging, marketing, distribution,
promotion, sale, or use of any of the Products, (ii) any
alleged or actual defect in any Product, (iii) infringement of
any third party intellectual property rights by any of the
Products or any trademark used on any of the Products or (iv)
any act or omission by SLS or any sublicensee, manufacturer,
distributor, sales agent or subcontractor of SLS (each, a
"Claim"). If any action or proceeding relating to a Claim
shall be brought or asserted against any Indemnitee, Company
shall promptly so notify SLS in writing and SLS shall assume
the defense thereof. Company may, at its own expense, be
represented by its own counsel in such action or proceeding.
c) SLS shall, throughout the Term and for two (2) years
thereafter, obtain and maintain at its own cost and expense,
primary and umbrella insurance coverage (including, without
limitation, product liability and advertising injury coverage)
with total minimum coverage limits of three million dollars
($3,000,000) per occurrence and four million dollars
($4,000,000) in the aggregate. Company and Xxxxxx Xxxxx each
shall be named as an additional insured on such policies. In
the event any other insurance coverage is available to Company
and/or Xxxxxx Xxxxx, such coverage shall be supplemental or
excess and non-contributing. SLS shall not cancel or
materially alter the coverage under such policies during the
Term and for two (2) years thereafter. SLS shall furnish
Company, upon request, with a certificate of insurance
evidencing such coverage.
6) REPRESENTATIONS AND WARRANTIES.
a) Company and SLS each represent and warrant to the other that:
(i) It is duly organized and is validly existing in good
standing under the laws of the jurisdiction in which
it was organized;
(ii) It has the power and is duly authorized to enter into
and perform this Agreement;
(iii)It has taken all necessary action to authorize the
execution and delivery of this Agreement; and
(iv) Its execution, delivery and performance of its
obligations under this Agreement will not violate or
conflict with or result in any breach of or default
under any material contract, agreement, lease,
license, indenture, trust or other instrument which
is either binding upon or enforceable against it, nor
will such execution, delivery and performance
conflict with any decree, writ, injunction, judgment
or order of any court or administrative or other
governmental body or of any arbitration award which
is either applicable to, binding upon or enforceable
against it.
b) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER
COMPANY NOR SLS MAKES ANY WARRANTIES OF ANY KIND AND DISCLAIMS
ALL OTHER WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE.
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7) TERM AND TERMINATION.
a) The term of this Agreement shall commence on the Effective
Date and continue in effect for a period of two (2) years (the
"Term").
b) In addition to all other rights and remedies available to
either party, this Agreement may be terminated by either party
for cause immediately by written notice upon the occurrence of
any of the following events: (i) if the other party ceases to
do business, or otherwise terminates its business operations;
(ii) if the other party commits a material breach of this
Agreement and fails to fully cure such breach within thirty
(30) days (five (5) days in the case of a failure to pay or a
breach of clause (i) of Section 1(a) and immediately in the
case of a breach of any other portion of Section 1(a)) of
written notice describing the breach; or (iii) if the other
party becomes insolvent or seeks protection under any
bankruptcy, receivership, trust deed, creditors arrangement,
composition or comparable proceeding, or if any such
proceeding is instituted against such party.
c) In addition to the termination rights set forth in Section
7(b) above, Company shall have the right to terminate this
Agreement immediately upon written notice to SLS if any of the
following matters occurs:
i) Upon the occurrence of any action or proceeding
relating to a Claim, which Company reasonably
believes will have a material adverse effect on the
reputation and/or image of Xxxxxx Xxxxx and/or
Company and such Claim is not dismissed or withdrawn
within thirty (30) days following Company's notice of
termination.
ii) The Company provides written notice to SLS that the
Company has reasonably determined, based upon the
results of testing of the Products by independent
qualified audio engineers selected and approved by
both parties, that the Company's continued
association with SLS pursuant to this Agreement would
diminish or tarnish the reputation and/or image of
Xxxxxx Xxxxx and SLS fails to cure the issues with
the Products found in such results within thirty (30)
days following such written notice.
iii) A recall of any of the Products is issued due to a
defect or quality assurance problems and such defect
or quality assurance problems are not cured by SLS
within thirty (30) days of the issuance of such
recall.
d) Immediately upon expiration or any termination of this
Agreement, all Licensed Rights granted to SLS hereunder shall
immediately and automatically revert to Company and SLS shall
cease all use of the Licensed Rights. Except for termination
pursuant to Section 7(b) or 10, or any expiration or
termination of this Agreement, shall not relieve SLS from its
payment obligations hereunder. The parties' respective rights
and obligations under Sections 1(a), 3, 5(b), 7(d), 9, 10 and
12 shall survive any termination or expiration of this
Agreement.
e) In the event of a transfer to any third party ("Transfer"),
through a sale, merger or otherwise, of more than fifty
percent (50%) of SLS's voting stock, assets or business, this
Agreement shall continue through the expiration of the Term,
but SLS's rights under Section 1(a) and the Company's
obligations pursuant to Sections 1(b), 2(a)(iii), (iv), (v)
and 2(b) hereunder shall continue for the duration of the Term
only with respect to SLS and the Products in existence
immediately prior to the date of the Transfer, and shall not
extend to the transferee or any products or services of the
transferee and Company shall have no further obligations to
SLS hereunder.
8) XXXXXX XXXXX BRANDED LOUDSPEAKERS. The parties contemplate the
possibility of SLS developing a line of loudspeakers, which line must
be acceptable to the Company, to be marketed and sold under the Xxxxxx
Xxxxx name or employing Xxxxxx Xxxxx'x likeness and SLS's payment to
Company of royalties from the sale of such products. Any and all terms
(including a license of Xxxxxx Xxxxx'x name and likeness for as long as
SLS sells such products) relating to the development, marketing,
distribution and/or sale of any such products shall be set forth in a
separate written agreement subject to negotiation by the parties, which
the parties agree to negotiate in good faith for a reasonable period of
time. No additional compensation other than an agreed percentage (at
5%, or if higher, at the "market rate" for celebrity representation on
consumer electronics products, but no greater than 7%) of the gross
revenue received by SLS (net of product returns and allowances)
associated with this product will be provided for under this deal.
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9) CONFIDENTIALITY. Any public disclosure and any press release regarding
this Agreement or the relationship contemplated herein shall be subject
to Company's prior approval (which approval shall not be unreasonably
withheld).
10) NON-DISPARAGEMENT. During the Term and for two years thereafter,
Company and Xxxxxx Xxxxx shall not make any public statements in
derogation of SLS or the Products. Notwithstanding the foregoing,
neither Company nor Xxxxxx Xxxxx shall be restricted from making any
statements as may be required by law, legal process or court order or
pursuant to a request by a government agency.
11) FORCE MAJEURE. Neither party shall be liable for non-performance or
delay in performance (other than of payment or confidentiality
obligations) caused by any event reasonably beyond the control of such
party. If such condition continues for a period of more than ninety
(90) days, then the unaffected party shall have the right to terminate
this Agreement upon written notice to the other party.
12) MISCELLANEOUS. Neither this Agreement, nor any of the activities
described herein shall be construed to create a partnership, joint
venture, agency or other such relationship. Except as expressly set
forth herein, this Agreement represents a non-exclusive relationship
and nothing shall preclude a party from entering into a similar
relationship with other parties. SLS and Company shall not assign this
Agreement or any of its rights under this Agreement, by any act of such
party or by operation of law or otherwise, without the prior written
consent of the other party and any purported assignment without the
other party's consent shall be null and void. Any notice given to
either party under this Agreement shall be sufficient if sent to such
party's address as set forth on the first page of this Agreement, or
such other address as such party may designated in accordance with this
provision and shall be deemed given (i) on the date of delivery if
delivered by a commercial overnight courier service or (ii) on the
earlier of the date of receipt or three (3) days after deposit in the
mails if sent by certified or registered mail, return receipt requested
and postage prepaid. This Agreement shall be governed in all respects
by the laws of the State of California without regard to conflicts of
laws provisions thereof. If any provision of this Agreement is held by
a court of competent jurisdiction to be illegal, invalid or
unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so that this Agreement shall otherwise remain
in full force and effect and enforceable. This Agreement may not be
modified except by written agreement signed on behalf of Company and
SLS by their authorized representatives. This Agreement constitutes the
entire agreement between the parties respecting the subject matter
hereof, and merges all prior and contemporaneous communications, both
written and oral.
AGREED AND ACCEPTED:
SLS INTERNATIONAL, INC. GLOBAL DRUMS, INC.
By By
--------------------------------- --------------------------------
Name: Name:
--------------------------------- --------------------------------
Title: Title:
--------------------------------- --------------------------------
Date: Date:
--------------------------------- --------------------------------
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EXHIBIT A
INDUCEMENT LETTER
-----------------
Dated as of April __, 2004
SLS International, Inc.
0000 X. Xxxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Ladies and Gentlemen:
Reference is made to that certain Promotion Agreement, dated April __,
2004, by and between Global Drumz, Inc. ("Lender") and SLS International, Inc.
("you"), covering the lending of services, and licensing of certain rights of
publicity, of Xxxxxx Xxxxx (the "undersigned") by Lender to you (the "Promotion
Agreement").
As an inducement to you to enter into the Promotion Agreement and as a
material part of the consideration moving to you for so doing, the undersigned
hereby represents, warrants and agrees as follows:
1. That the undersigned has heretofore entered into a valid and subsisting
agreement (herein called the "Employment Agreement") with Lender
covering the rendition of the undersigned's services for Lender, and
under which the undersigned is obligated to render his services for at
least the full term of the engagement of the undersigned's services
under the Promotion Agreement, and that Lender has the right and
authority to enter into the Promotion Agreement and to furnish to you
the rights and services of the undersigned upon the terms and
conditions specified therein.
2. That the undersigned is familiar with each and all of the terms,
covenants, conditions, representations, acknowledgements and warranties
of the Promotion Agreement and hereby consents to the execution
thereof; that the undersigned will be bound by and will duly observe,
perform and comply with each and all of the terms, covenants and
conditions of the Promotion Agreement on the part of the undersigned to
be performed and complied with; that the undersigned shall render to
you all of the services which are to be rendered by the undersigned
pursuant to the Promotion Agreement, even if Lender shall be dissolved
or shall otherwise cease to exist; that the undersigned represents,
acknowledges and warrants in the same manner all matters and things
that Lender represented, acknowledged or warranted in the Promotion
Agreement; and that the undersigned hereby confirms that there have
been granted to Lender all of the rights granted by Lender to you under
the Promotion Agreement.
3. That the undersigned is under no obligation or disability by law or
otherwise which would prevent or restrict the undersigned from
performing and complying with all of the terms, covenants and
conditions of the Promotion Agreement on the part of the undersigned to
be performed or complied with.
4. That the undersigned will look solely to Lender or its associated or
subsidiary companies and not to you for all compensation and other
remuneration for any and all services and rights which the undersigned
may render and grant to you under the Promotion Agreement.
5. That the undersigned will not amend or modify the Employment Agreement
in a manner that would prevent or interfere with the performance of the
undersigned's services for you or the use and ownership of the results
and proceeds thereof in accordance with the Promotion Agreement.
Very truly yours,
---------------------------
Xxxxxx Xxxxx
("Employee")
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